Finnish tech firm Nokia (NYSE:NOK) has held a popular spot in the telecommunications industry for the last decade. NOK stock has been highly volatile in the last few months, and it dropped significantly after the company reported a contraction in the revenue expectation for 2021.
The stock was down 4% last year, and it hit a lifetime high last month after the Reddit rally. There is a lot to be excited with the company’s strong cash position and strategic partnerships. NOK stock is worth your money in the long run.
Let’s take a look at why it should be on your radar.
The Cashflow Position Is Exciting
In Q4 results, Nokia managed to beat the revenue estimates and hit 6.57 billion EUR in sales. The net sales grew 1%, and the operating profit saw a decline of 41% year-over-year. What is notable here is that the company is free cash flow positive, which means it has enough money to put into dividends, partnerships and 5G rollout.
The company reported a free cash flow of 1.356 billion EUR in 2020 and 778 million EUR in Q4. It only had 319 million EUR in Q3, which means there was a significant increase in the last quarter. This is the third consecutive quarter of positive free cash flow.
The Q4 free cash flow is 144% higher, and it beat the company forecast of 600 million EUR. Considering the slowdown in business due to the pandemic, the free cash flow generation is impressive. Even if the company does not see a significant rise in sales and revenue, it has enough free cash flow for business growth. This solid liquidity position can drive growth in the coming year.
Making the Right Partnership Moves
Nokia has been one of the few companies that has continued to invest in 5G technology, but it has not been able to maintain the pace. Due to the pandemic, it could not roll out its 5G network in 2020, which had an impact on revenue and growth. But Nokia did not give up.
The company is already on its way to make it big with 6G. It is working with a team of universities and companies in a project to build 6G mobile technology. Known as Hexa-X, it will be a new generation of mobile tech. If Nokia makes a breakthrough with 6G, it could open up the door to huge opportunities and take the stock to new highs.
The company holds 15% market share in the global industry, following Huawei, which has a 16% share. Despite losing 5G contracts with China Mobile (NYSE:CHL), Nokia continues to mark its presence across different countries. Specifically, Nokia has collaborated with Brazil’s Telecommunications Research and Development Center to build customized applications and solutions on the Open RAN for the Brazilian market.
Furthermore, NOK recently partnered with Elisa in a private mobile network push. The companies will collaborate to help Finnish organizations accelerate digitization. It also has an ongoing partnership with IBM (NYSE:IBM) for deploying 5G.
This is a clear sign that the company is making the right strategic moves, and it could pay off in the long run. It has the resources to deploy when it comes to partnering with organizations across different countries. Even if there is no significant achievement with the 5G rollout, the company has enough contracts to continue the momentum.
Analysts Love NOK Stock
Wall Street analysts are bullish on the stock. On Feb. 8, Northland Capital Markets analyst Tim Savageaux maintained an outperform rating with a price target of $5.50. Barclays maintained an equal weight rating and raised the price target to EUR 3.30 from EUR 3.15. Further, Deutsche Bank analyst Robert Sanders maintained a buy rating with a price target of EUR 4.60 from EUR 4.
Earlier in the month, DNB Markets analyst Frank Maao double upgraded the company to buy from sell with a price target of EUR 4.80.
Does That Make Nokia Stock a Buy?
Nokia cannot be written off. It has a huge potential for 5G and is valued reasonably. If the company can execute well and deliver on the potential, the stock does have an upside. The only problem is that one cannot put a timeline on it. How and when 5G will roll out or when 6G will enter the market is something nobody can predict.
To conclude, I believe that the partnership with IBM and 6G potential is a good reason to add NOK stock to your portfolio. With a market capitalization of 23 billion, the stock is well-priced. For now, it should be a small part of your portfolio.